tv Nightly Business Report PBS July 18, 2011 7:00pm-7:30pm EDT
>> tom: president obama names his choice to lead the government watchdog agency overseeing credit cards, mortgages and other consumer lending. >> susie: from a new bank sheriff to buying bank shares. we'll hear from one analyst who says now's the time to invest certain financial firms, and from another who says stay away. it's "nightly business report" for monday, july 18. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. we're less than a week away from president obama's deadline for raising the debt ceiling. tom, today the president said he and republican lawmakers were "making progress" after a series of weekend meetings. >> tom: susie, with the clock ticking, these are the latest developments. as we know, the leader of the senate says the chamber will meet every day until congress sends the president legislation to make sure the u.s. government does not default on its obligations.
the house is set to pass a budget cut, cap and balance bill tomorrow. it includes a proposed budget amendment to the constitution, but credit rating agency moody's says the u.s. would be better off if the debt ceiling was eliminated entirely. >> susie: the debt showdown wasn't the only dominant topic in the nation's capitol today. the president nominated richard cordray to be the nation's top consumer advocate. darren gersh has details. >> reporter: the president vowed to fight back against what he called an army of lobbyists trying to weaken the new consumer financial protection bureau. that agency was created to fight lending abuses that the president says were a leading cause of the financial crisis. >> we are not going to just shrug our shoulders and hope it doesn't happen again. we're not going to go back to the status quo, where consumers couldn't count on getting protection that they deserve. we're not going to go back to a time when our whole economy was vulnerable to a massive financial crisis. >> reporter: to make sure that doesn't happen, the president nominated richard cordray to be the c.f.p.b.'s first director. as ohio attorney general,
cordray aggressively attacked fraudulent foreclosures. ernie patrikis, an expert in banking regulation, says cordray is a tough adversary. >> he is not going to be a very easy fellow for some companies to get along with. he has a strong track record of going after people and he's done it in mortgage servicing. he did it against the rating agencies, so if he can ultimately control the agency, he'll really move it. >> reporter: that's if he gets confirmed by the senate, and that will be a tough battle. republicans are demanding more oversight of the c.f.p.b.'s proposed $550 million budget and a new leadership structure, replacing a single director with a five-member board. that's also the position of many banks, says the financial services roundtable's scott talbott. >> we are for creating a five- person panel. it doesn't dilute the total power of the c.f.p.b., it simply spreads it out, so if an idea's
a good one, then let's have a panel agree to it. that provides the checks and balances to it. the checks and balances are necessary. >> reporter: one thing seems clear-- without a strong leader in place, the c.f.p.b. is off to an uncertain start. >> they will be doing a lot of thinking, a lot of preparatory work for what they want to do-- organizing, drafting, but nothing will be effective. >> reporter: consumer groups endorsed cordray, but were clearly disappointed the president sidestepped selecting elizabeth warren. the c.f.p.b. was her idea, and president obama put her in charge of setting up the office, but she was considered too confrontational to have any chance of winning support from senate republicans. darren gersh, "nightly business report," washington. >> tom: if richard cordray is confirmed, part of his job will be checking the books of big banks. we'll get a better idea of how they're doing in the coming days when many report quarterly earnings. by the end of this week, 40% of financial firms in the s&p 500 will have reported their
numbers. as a group, the results are expected to be downright awful. erika miller reports. >> reporter: banks are the heartbeat of the economy, so their health is often used as a barometer of the recovery-- and the stock market. unfortunately for investors, bank analyst jim sinegal sees plenty of uncertainties ahead. >> in addition to macroeconomic uncertainties, with unemployment high, with g.d.p. growth slow, will the banks be able to add new loans? that's number one. number two is the regulatory uncertainty. we are still not sure where capital levels are going to fall out, and how that's going to affect profitability. >> reporter: as for profitability, diversified financials are expected to be the worst performer this earnings season-- down 94%. this is the group that includes bank of america, j.p. morgan and citi. but there's a catch. take out bank of america, and earnings for the group are expected to rise 23%, better than th8% gain for the overall market. against that backdrop, analyst
jim sinegal says now is a good time to buy select financial stocks: j.p. morgan, wells fargo and u.s. bancorp. >> we think that if you stick to high quality names, at current prices, current earnings, and most of their capital problems behind them, we think they are one of the best sectors in terms of investment opportunities. >> reporter: but burt white of l.p.l. financial warns it's too risky to buy any bank stocks now. >> we think that there are way too many questions and just not enough answers, between housing and foreclosures and the euro crisis and regulatory reform. plus, just some of the simple negatives like a flat yield curve and zero interest rates, so they can't earn money on money market reserves. >> reporter: those concerns have weighed on stocks in the sector. the b.k.x. index of bank stocks has fallen nearly 20% from its high back in february. and if you are thinking of buying financial stocks for their dividends, think again. in their heyday in 2007, the group yielded 3.3%.
now they pay out just 1.8%, the lowest of any industry group in the s&p 500. erika miller, "nightly business report," new york. >> tom: still ahead, the murdoch mess. ruper murdoch's newscorp is under scrutiny for questionable journalism on both sides of the atlantic, but we'll talk to an analyst who still likes the stock. >> susie: government debt worries put investors in a selling mood. at the close, the dow lost 94 points, the nasdaq fell nearly 25 and the s&p 500 off almost 11. as for volume, 871 million shares were traded here at the big board and just shy of 1.8 billion at the nasdaq. meanwhile, all that glitters is gold. the yellow metal closed above $1,600 for the first time. ever. gold for august delivery settled at $1,602 an ounce, up $12. that's a record in dollar terms, but below the peak reached in the 1980s, after accounting for inflation.
>> susie: big layoffs announced late today at cisco systems. it will layoff 6,500 workers, or about 9% of its full time workforce. analysts predicted thousands of job cuts after cisco announced plans to reorganize in may. the company had been losing ground in the network equipment business. cisco says the move will cut annual expenses by about $1 billion.
>> tom: big blue saw a lot of green in the second quarter. the technology company continued its recent trend of reporting better-than-expected profits. earnings were six cents better than estimates. software, services and hardware revenue each grew by double digits, leading i.b.m. to raise its earnings guidance for the year. tom smith covers i.b.m. as an analyst at standard & poor's. tom, strong quarter, any concern for ibm in. >> i think was a pretty bright-quarter all around and despite some weakness in japan as a regional territory, japan was weak in the aftermath of the earthquake. >> now we saw some of the double-digit revenue increases across-the-board, the backlog of service contracts is up as well. big growth in software systems and services which is the big moneymaker. the outlook looks pretty bright so what should shareholders be paying close to. >> the outlook is pretty bright. going back to your earlier
question, you could tone down your enthusiasm because the top line reporting of revenues based on currency tailwind, nevertheless, 5% same currency as revenue growth for the company overall is pretty good. so it is looking ahead i think we have to see whether the strength in hardware can continue because they had new fresh batch of machines last september. and those are now about a year dated. and they will pull a lot of orders for three quarters now and that will continue and software and services get added on to that. and that continues for another year or so. that is one question in mind. >> at least i anybodially it seems like the shareholders were putting courage-- the share price looks to pop to possibly a new high after hours, certainly if did. if that continues to tomorrow it will be close to $180 per share. what is your outlook for the stock sm. >> that's right. our outlook has been a strong buy going into the report. and remains a strong buy
afterwards and i was able to raise my earnings estimate and also push my 12 month target price from 196 to $205 dollars so i'm even more optimistic and the share price is improving on this. you hope that it can carry through. one knock on ibm, sometimes it's so big it can't increase revenues. but they had a pretty good quarter on revenues. >> big revenue already and seeing it grow by double digits across some of the business units. what does this mean, extrapolate ibm's performance for hewlett packard. what does it mean for hp? >> i think for hp and maybe dell too, a big data center conglomerate, if you will, that there is interest in enterprises and government nonprofits. governments were a little bit weaker. but as opposed to discretionary consumer hardware, the enterprise business for data centers is still pretty strong. so that caters to quite a bit of what hp does and a
lot of what dell does. those two, of course, are exposed to pts which are rch more, which have a business component and discretionary component. that discretionary component makes those two look a little slower in that sense in terms of revenue or more volatile. >> we'll see those in the weeks ahead, sorry for cutting you off, a quick look at ibm after the close, tom smith with standard & poor's. ahead of the i.b.m. news, stocks were weak thanks to government debt worries, both in europe and here in the u.s. let's get to tonight's "market focus." today's 11-point drop of the s&p 500 takes the index down to its lowest level this month. here are the past 90 sessions. here we are. the march low remains intact,
here it is, on the far side, but the index was unable to crest above this april high during the bounce-back rally last month. here we are. the low in june will be one area to watch if the downward pressure holds. compare that to the past 90 sessions of the nasdaq 100 exchange-traded fund. it was down 0.5% today, but is not at its lowest price of the month. the tech sector has held up a little better in recent weeks than the broad market. thanks to this broad move higher late last month. tech was the best sector today in the weak market. the market focus will be on i.b.m. tomorrow after its earnings, but also apple, which reports earnings after the close tomorrow. apple was among the strongest tech names today-- up 2.4%. bit of technology burst ourselves here on screen. volume was stronger than usual as today's action puts apple at a new high. apple reportedly is close to a new to selling its iphone in
china deal. we'll have more on apple and its growth prospects tomorrow. while apple jumped to a new high, bank of america stock continues sinking to two-year lows. b. of a. dropped another 2.8% today. this was the biggest loser among the dow industrials, and the financial sector weighed on the market today. not just big banks, it was insurance stocks that were the worst in the finance sector. worst selling in broad market. late friday, s&p warned the credit ratings of insurers holding u.s. government debt would be in jeopardy if there is no debt deal in washington. genworth fell more than 7.5% to a new 52-week low. allstate shed 5% to its lowest price since august, and hartford fell almost 4% to its lowest price of the year. between the potential push higher on mortgage rates if there is no deal on debt and the struggling jobs market, homebuilder confidence remains weak and so do share prices. the homebuilder exchange-traded fund fell 1.5%, threatening its lows last month.
also coming back to earth? delta airlines stock. look at this continued push lower. earnings are expected tomorrow. the stock has been trending lower thanks to the soft patch of economic news and oil prices remaining over $90 per barrel. some analysts worry with no debt deal, airlines would see higher interest costs for their borrowing. clearly some selling continuing. chinese solar panel maker l.d.k. has faded to its lowest stock price in a year. off another 3% today. it's the latest chinese firm to face questions about its governance. a report from fitch ratings raised issue with a concentrated stock ownership structure and wild swings in profit margins. leading to the selling pressure. and finally, it's not often celebrity gossip finds its way into the stock market, but retailer kohl's has plans to launch a clothing line by jennifer lopez and marc anthony. it will start in september, despite the two announcing their divorce late last week.
the stock price coming off its most recent high. and that's tonight's "market focus." >> susie: newscorp is in for another week of scrutiny as that phone-hacking scandal escalates. late today, standard & poor's ratings service put the media giant on credit watch with "negative implications," saying there are increased risks related to the broadening legal issues at newscorp. the action comes a day before c.e.o. rupert murdoch and his son, james, testify before the british parliament tomorrow
morning, but our guest tonight says newscorp stock is still his top pick. joining us now? jason bazinet, media analyst at citigroup. hi, jason, nice to you have with us. >> thank you so much. >> susie: let's start right off with that stock. it's been down sharply since the scandal broke. and you said in a citi report that news corporate is quote too compelling to ignore. tell us why you are so bullish on the stock? >> well, there are a couple of reasons the stock is down some of. one is several weeks ago people expected news corporate to consolidate all of bskyb and now that is not happening. it disappoint investors. and second you have this broadening scandal. but when we look at the numbers news corp. is trade being 10 times forward earnings. and parently they have about 12 billion of cash on the balance. if you make that adjustment and remove the cash from the market capitalization they are trading closer to 6.5 times earnings. that's too compelling to ignore. >> what about some of the other issues that are on the
worry list for investors and we listed some of them on the screen here. let's take a look. one of the worries is what if news corporate is forced to sell its british newspaper what if u.k. regulators for its the company to sell its stakes that it already holds in bskyb satellite. news corp. without also lose its tv licences if u.s. regulators say news corp. is no longer fit to own american television properties. there is a question about leadership change at the top. if rupert murdoch steps down or out as c.e.o. and what-- will any of the senior executives indicted or go to il gentleman. so what impact do these issues have. what are the financial implications? >> well, if i can remember that list, let me try and go through them. the disposition of the newspaper assets in the u.k. is really inconsequence. news corp. does 4.5 million of operating income a year. assets to -- 0 million. so we're talking about less than 2% of the operating income. and to the street a distraction. for those getting told t doesn't really matter.
the second risk was i believe the disposition of the 39% in bskyb. you know, the street likes that asset but at the end of the day if they end up sell that asset something going to have to happen to that 12 billion of cash sitting on the balance sheet that was going to be used to buy in the rest of bskyb so not only will news corporate holders get cash for the sale of the 39%, but that other 12 billion will come back to equity holders and that is yes focus on that mid single digit x to shall ca. the tv station, the street likes the tv station business. they have retransmission fees coming. the reality of this risk is actually quite low there was a case in the 1960s. rko got into trouble with the government. they didn't end up dispose approximating of all of their assets even though the sec told them to until 1990. it really was decades in the making. so i don't think that is a huge risk. even if it is you are going to see more cash come into
news corp. the cash balance will rise by another $5 billion or so. >> i don't think it is a major risk. >> a lot of good money aspects to it what about if rupert murdoch steps down at c.e.o. is that a positive or negative. >> john malone, another c.e.o. of another media company was once asked by rupert murdoch's technology and plan approximating. he famously quipped half of news corporate share holders are afraid rupert murdoch will live and the other half are afraid he will die. what he meant was people think mr. murdoch is an intelligent man but there have been times in the past whether the share holders misallocated capital. so changing guard is sort of a mixed bag it is not necessarily a negative. >> susie: very interesting information. we'll see what happens tomorrow at those hearings in the u.k. thank you so much, jason. >> thank you. >> susie: we've been speaking with jason bazzinnette, media analyst the at citigroup. >> tom: here is what we are watching. another check on the housing sector due in, the june numbers on housing starts
and building permits. plenty of earnings as well. >> tom: here's what we're watching for tomorrow: and a couple of big tech giants reporting-- we'll see how the ipad's adding to apple's bottom line and whether yahoo is gaining ground in the world of search advertising. >> susie: borders bookstore plans to write its last chapter this week after a weekend deadline passed without a bidder to keep it in business. late today, borders said it will ask a judge to approve its liquidation on thursday. it will begin on friday and wrap up by september. borders employs nearly 11,000 people. the company blames its demise on changes in the book industry and the popularity of the e-reader. >> tom: are you thinking about downsizing your car for something with better gas mileage? you may save money by waiting a little. according to kelley blue book, the average price of a new compact car cost a record $20,500 last month, but is expected to fall to about $19,300 by the end of the year. they see a similar trend with used cars, dropping from over $11,000 down to under $10,000.
fellow at the center on budget and policy priorities and former chief economist to vice president joe biden. >> the last time i offered a commentary here, about a month ago, i began by observing that the current debate over economic policy is generating a lot more heat than light. since then, its gotten much hotter and a lot darker. if congress fails to raise the debt ceiling by august 2, just a few days from now, we could end up taking an economic hit as devastating as it is avoidable. thats right-- this wound will be self-inflicted. how did it come to this? the answer is politics, and its an ugly, destabilizing politics of a type we haven't seen in this country for many years. ask yourself, are house republicans refusing to countenance any budget deal that includes tax revenues from closing a tax break for buyers of private jets because they think it's bad economics? or is it because almost every one of them-- over 270-- signed the grover norquist pledge that they would never raise taxes under any circumstances?
in a sense, it's a trivial example. closing that loophole would have virtually no effect at all on our long-term deficit. but in another sense, it's the crux of the matter. fierce partisanship is one thing, and it's clearly part of the american political landscape. we have profound differences and a political system that allows those differences to be both heard and embodied in our policies. but at the end of the day, our history shows that partisans compromise in the interest of preserving the common good. those who refuse to do so have no place in this debate. they are not legislators, working with their opponents to hammer out the best deal for both their constituents and the nation. they're pledge-takers who are threatening to abandon the common good for narrow self- interest. and that must not stand. i'm jared bernstein. >> tom: jared won't have the last word on the debt debate. in the coming days and weeks, we'll continue to bring you thoughts and views from all sides.
>> susie: and finally, hold on to your cell phones if you plan to visit miami, new york or los angeles. according to a recent study by mobile security company lookout, those are the three top cities for cell phone loss or theft. the remainder of the list spans coast to coast. it includes phoenix, sacramento, chicago, dallas, houston, philadelphia and tampa. and tom, pools, taxis and airplanes are the top three worst places to lose your cellphone. cell phone and that's why i always have mine right next to me so i don't lose it can't live without it. >> tom: top of my list, toddlers, a tough place to lose a cell phone too. >> susie: that's nightly business report for monday, july 18th. i'm susie gharib. have a great evening, everyone. you too, tom. >> tom: you as well, susie. good night, thanks for joining us this evening. be right back here tomorrow.